Penn National Balks at Adding Seats in Ohio

Executives at racetrack owner Penn National Gaming said the Ohio State Racing Commission is out of touch for requesting added seating for planned relocated racetracks in the Buckeye State.

The OSRC has requested the track owner add more indoor seating with views of live racing to its plans for the relocated Beulah Park, which will be moved to Austintown Township in Northeast Ohio and be called Hollywood at Mahoning Valley Race Course; and a relocated Standardbred track, Raceway Park near Toledo, which will be moved to Dayton. Both tracks will be racinos.

Penn National Chairman Peter Carlino said the regulator is living in the past and is asking the company to supply race seating that will not be used.

"The difficulty is that racing commissions, not just in Ohio but elsewhere, just haven't caught up with reality that the kind of racing business that we've known in the past is no more," Carlino said in an April 18 teleconference with investors. "Facilities being built today are built with reality in mind."

Penn National executives said they've been meeting weekly with the OSRC, which has called for more indoor seating at Mahoning Valley than the currently proposed 750 seats. Carlino believes a deal eventually will be reached. He said the track owner has little wiggle room because Ohio requires substantial upfront fees to the state for licensing the facility and for a relocation fee.

At a March 20 OSRC meeting, John Finamore, PNGI senior vice president of regional operations, said each new facility would cost about $250 million: $125 million for construction, $75 million for a relocation fee, and $50 million for the licensing fee.

"Given that, there is just a finite amount of money that can be spent on this facility and we will be, as we've always been, extraordinarily disciplined about what we'll spend there," Carlino said. "There's really not any room to go much further. We've got a facility, it's a terrific facility."

Steve Snyder, a PNGI vice president who has been overseeing the Ohio plans, said the track owner does not want to put in a large number of seats that will not be used.

"(The OSRC has) a notion of where the state of affairs are in racing in the United States in 2013 that is just obsolete and is not reflective of where racing patronage and therefore racing facilities need to be," Snyder said. "We've invited them to see our facilities, see our newer products to get a better understanding. We've encouraged them to visit other facilities outside the state of Ohio. They've, for budgetary reasons, refused."

Carlino said the Ohio plans are in line with other new racino facilities.

"What we've proposed is completely in line with that," Carlino said. "It's our hope, that sooner or later, they'll come around to recognize that what we've proposed is what ought to be there."

Snyder was unable to tell investors when the issue would be resolved.

As for Penn National's first quarter, the company saw net income of $65.3 million fall $3 million short of its guidance, although revenue improved 8.4% to $798.2 million. That revenue fell $1 million short of guidance. Carlino blamed the net income shortfall on increased expenses.